Income Determination and Multiplier-Important Questions

IMPORTANT QUESTIONS

CHAPTER 18: Income Determination and Multiplier

  1. Why must aggregate demand be equal to aggregate supply at the equilibrium level of income and output? Explain with the help of a diagram.
  2. Explain national income determination through the two alternatives approaches. Use diagram.
  3. Economists are generally concerned about the rising Marginal propensity to save in an economy. Explain why?
  4. Calculate multiplier when MPC is 4/5 and ½. From the calculations establish the relation between size of the multiplier and size of MPC.
  5. What is the relationship between marginal propensity to save and multiplier?
  6. If marginal propensity to save is 0.1, calculate vale of multiplier.
  7. In an economy planned spending is greater than planned output. Explain all the changes that will be take place in the economy.
  8. Explain the meaning of under employment equilibrium.
  9. What is investment multiplier? Explain its working using a suitable numerical example.
  10. Explain determination of equilibrium level of income using ‘consumption plus investment’ approach.
  11. Explain the meaning of equilibrium level of income and output using saving and investment approach. Use a diagram.
  12. In an economy planned spending is greater than planned output. Explain all the changes that will take place in the economy?
  13. Explain determination of equilibrium level of national income using aggregate demand and aggregate supply approach. Use diagram. Also explain the effect when aggregate demand is less than aggregate supply.
  14. Explain the changes that take place when aggregate demand and aggregate supply are not equal.
  15. Explain the relationship between MPC and multiplier with the help of an example.
  16. Explain the following using a diagram:-
    1. Full employment equilibrium
    2. Underemployment equilibrium
    3. Over full employment equilibrium
  17. In an economy the equilibrium level of income is Rs. 1,200 crore. The ratio of marginal propensity to consume and marginal propensity to save is 3 : 1. Calculate the additional investment needed to reach a new equilibrium level of income of 20,000 crore.
  18. In an economy marginal propensity to consume is 0.75. If investment expenditure is increased by Rs. 500 crore, calculate the total increase in income and consumption expenditure.
  19. An increase of Rs. 200 crore in investment leads to a rise in national income by 1,000 crores. Find out marginal propensity to consume.
  20. In an economy 75% of the total increase in income is spent on consumption. Investments is increased by 1,000 crore. Calculate
    1. Total increase in income
    2. Total increase in consumption expenditure.
  21. Given consumption function C = 100 + 0.75Y (where C = consumption expenditure and Y = national income) and investment expenditure Rs. 1000 calculate.
    1. Equilibrium level of national income
    2. Consumption expenditure at equilibrium level of national income.
  22. The saving function of an economy is S = −200 + 0.25Y. The economy is in equilibrium when income is equal to 2000. Calculate
    1. Investment expenditure at equilibrium level of income
    2. Autonomous consumption
    3. Investment multiplier
  23. From the following data about an economy, calculate its equilibrium level of income:
    Marginal propensity to consume = 0.5
    Autonomous Consumption Expenditure = 300
    Investment Expenditure = 6000
  24. If marginal propensity to consume is 0.8, how much will be the value of investment multiplier? Calculate.